United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $135,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.41 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $470,000. Finally, the project requires an immediate investment in working capital of $385,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $4.90 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 35%. The cost of capital is 12%. What is the NPV of Pigpen's project? Note: Enter your answer in thousands, not in millions, rounded to the nearest dollar. NPV thousand

United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $135,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.41 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $470,000. Finally, the project requires an immediate investment in working capital of $385,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $4.90 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs are expected to be 90% of sales, and profits are subject to tax at 35%. The cost of capital is 12%. What is the NPV of Pigpen's project? Note: Enter your answer in thousands, not in millions, rounded to the nearest dollar. NPV thousand

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

ASAP An investment of $200,000 is required to expand a certain production facility in a manufacturing company. The firm estimates that labor costs will be $150,000 for the first year but will increase at the rate of 8% over the previous year’s expenditure. Material costs, on the other hand, will be $400,000 for the first year but will increase at the rate of 10% per year due to inflation. If the firm’s inflation-free interest rate (i′) is 20% and the average general inflation rate (f) is expected to be 15% over the next 5 years, determine the total present equivalent operating expenses (with no tax consideration) for the project. Please show step by step answer.
Darren and Susan want to provide funding for their daughter Jerri, age 10, to attend four years of college, starting at age 18. The current annual cost of tuition is $19,000. Assume inflation of 6% and after-tax earnings of 5%. If the couple wants to have enough life insurance to assure adequate funds for Jerri when she begins college (should Darren die today), approximately what amount of life insurance covering Darren is needed for the college funding? (Round your answer to the nearest dollar.) A)$80,835 B)$83,166 C)$83,958 D)$80,071
James is considering a project which would cost $10,000 now. The annual benefits, for 4 years, would be a fixed income of $3,500 a year, plus other savings of $500 a year in year 1, rising by 5% each year because of inflation. Running costs will be $1,300 in the first year, but would increase at 10% each year because of inflating labour costs. The general rate of inflation is expected to be 71% and the company's required money rate of return is 16%. Is the project worthwhile? (Ignore taxation.)<
The tuition in a private university was $25,000 per academic year in 1999. If the inflation rate has been averaging at the rate of 3%, how much one should have invested in 1999 to send a kid to this private university in 2017. Assume the investment earned an 8% return. Answer Options: $10,649 $12,156 $14,027 $13,252
The average price of gasoline in 2005 was $ 2.31 per gallon. In 1993, the average price was $1.07. The average annual rate of increase in the price of gasoline over this 12-year period is 6.62%. If we assume that the price of gasoline will continue to inflate at this rate, how long will it be before we are paying $6.73 per gallon?
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,200 a month in a stock account in real dollars and $545 a month in a bond account in real dollars. The effective annual return of the stock account is expected to be 11 percent and the bond account will earn 7 percent. When you retire, you will combine your money into an account with an effective annual return of 8 percent. The inflation rate over this period is expected to be an effective annual rate of 4 percent. a. How much can you withdraw each month from your account in real terms assuming a withdrawal period of 25 years? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
Due to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 3.2%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 2.1% in the U.S. and 3.6% in the U.K. for the next three years. The GBP/USD rate is currently 1.3081. What is your expected future spot for GBP/USD three years from now? (X.XXXX)
A manufacturing company plans to replace an existing production line with a newer and more energy ecient model. The cost of acquisition and installation is $40,000. The new equipment will save 200,000 kWh of electricity consumption every year, while the production capacity remains unchanged. The cost of the electricity will be $0.1/kWh in the first year of operation and is expected to increase at the rate of 4% per year afterwards because of inflation. Assume that the equipment has a service life of five years and will be operated for 4,000 hours per year. Considering that the equipment has no salvage value, determine the equivalent dollar savings per each operating hour at i = 9%. A) $5.38 B) $2.81 C) $2.43 D) Answers A, B and C are not correct.
8-11. A large corporation's electricity bill amounts to $400 million. During the next 10 years, electricity usage is expected to increase by 65%, and the estimated electricity bill 10 years hence has been projected to be $920 million. Assuming electricity usage and rates increase at uniform annual rates over the next 10 years, what is the annual rate of inflation of electricity prices expected by the corporation? (8.2)
A four-year project requires $1 000 000 as the first cost and brings $2 000 000 at the end of the fourth year. If expected annual inflation over this period is 5%, what is the real IRR of this project ? 13.3%18.9%47.6%27.6%
Your department is budgeting miscellaneous expenses for the next 5 years. Your best guess at the annual inflation rate is 3.9% and the combined MARR is 15%. Expenses currently run $14,500 per year. Assume that expenses are end-of-year payments. Solve, a. Determine the then-current dollar amounts for years 1, 2, 3, 4, and 5. b. Determine the constant-dollar amount for years 1, 2, 3, 4, and 5. c. Determine the PW of the then-current-dollar amounts. d. Determine the PW of the constant dollar amounts.
This plant design, entitled “IIVSDROP: The First Ear Dropper Solution Manufacturing Plant in the Philippines” considers a 30-year period of study, starting 2021, after finishing its construction by 2020. All projections,and interest rates set by the company shall be evaluated within this 30-year period. The inflation rate shallnot be included in the computation and a minimum attractive rate of return is set at 20%.Our company produces ear dropper solution which can be sold for PHP. 125.00 per bottle. Annually, thecompany can produce 1000 pallets of the product. Each pallet is stacked with 14 layers and each layerconsists of 8 boxes. A box contains 12 bottles of ear dropper for wholesale purposes. In addition, thecompany also ventures for retail services. By-products are also produced by the company including excess chemicals that can be sold for P1,200 per15 grams. IIVSDROP produces a total of 7,820 kg of these excess chemicals per year.The company shall be constructed at Nasugbu,…